A number of prominent tech companies have been subject to questioning from the SEC about how they record their revenues. Some worry that the weak reporting standards for private companies could also be inflating a bubble in technology companies that have yet to go public.
On Wednesday, The Wall Street Journal reported that a number of private technology companies seemed to be very loose about how they reported revenue or potential revenue to investors. In one instance, tech company Hortonworks implied that it would have annual sales of $100 million by the end of 2014. After it went public, the company reported that its actual 2014 sales were less than half of what it told private investors. A growing number of private companies are being valued at $1 billion or more. The New York Times recently reported that many of these private companies may not be worth as much as their latest round of financing implies. Moreover, a growing number of private companies have had to lower their valuations and hand out additional shares to earlier investors when they go public.